Blockchain: Supply Chain Risk Mitigation
Is Blockchain our protection from “Stranger Danger?” Perhaps, if the stranger becomes an organization we can trust.This applies to the Supply Chain. When our trust levels on the other participants in your supply chain are very low, we act in silos and take a somewhat protective approach. Of course, this prevents us from having an orchestrated supply chain in which each echelon can efficiently play music with each other.
But what would happen if we can really boost trust with each link? Precisely, Blockchain is doing that; transforming today’s supply chains as never before. We can well be witnesses and actors of an unbreakable chain of trust. This could be a needle mover for our industry!
How is this possible? Blockchain – the technology behind Bitcoin and other cryptocurrencies–creates a digital ledger that enables proof of ownership of an asset and the transfer of ownership from one entity to another without using a third party. The distributed ledger is updated and validated in real time with each network participant. This enables equal visibility of activities and shows where an asset is at any point in time, who owns it, and what condition it’s in.
Once we have bumped our trust levels in Supply Chain, collaboration among their participants begins. Traditionally, in a non-blockchain environment, each of the segments does it in its own way, having different systems that don’t speak to each other and, not surprisingly, there is a huge amount of paper involved. Needless to say, we cannot have a full view of what’s going on.
Instead, the shared blockchain platform accessible by the supply chain ecosystem is like a powerful steroid version of FedEx, DHL or UPS tracking capabilities. When you would like to know the status of your package, you enter the tracking ID and you can see all that has happened with it. Imagine this, but across all the supply chain and always in real time. What’s in it for me (WIIF)?
This sounds great, but ¨show me the money¨, as we saw in Jerry Maguire’s movie. The key principles behind Blockchain – transparency, traceability, decentralization and security – generate great advantages. According to the World Trade Organization, it will increase GDP by 5% and the Global Trade volume by 15%.
The main benefits consist of the following:
Reduction or elimination of fraud and errors due to the minimization of paper
Minimization of courier costs
Inventory management improvement
Fast traceability and therefore faster issue identification
Increase in consumer and partner trust
Let’s take a look at these benefits considering real business situations. Think of Chipotle or Jack in the Box with the E. coli issue. As these food chains lacked the benefit of monitoring their suppliers in real time, their hands were tied when it came to preventing the contamination, or containing it after its discovery.
Blockchain would have given Chipotle and Jack in the Box extended visibility to immediately identify and address the E. coli issue. Walmart is applying blockchain for their Mexican mangos. Retracing the origin of products went down from a few days to a few minutes!
So far so good; but how will blockchain specifically change my work as a professional in Supply Chain – Sourcing & Procurement, Operations and Logistics? Let’s dive into each of these areas.
If you are in Sourcing & Procurement, the way you go to the market will be different. Kouvala Innovation, for instance, has a solution in which pallets with RFID tags would communicate their need to get from point A to point B by a certain date. Carriers would submit their bids and the RFID tag would award the business to the carrier that best fits the requirements in terms of service and price. Definitely, blockchain would continue to track the shipment. There are also smart contracts, which are automatically executed based on the terms and conditions.
If you are in Operations, it will have an effect, as this technology’s potential traceability and automation benefits go beyond things. It could also be applicable to persons. For instance, in a
Blockchain environment, unique traceable identifiers would allow all members of a supply chain community to monitor the activity of each other’s credentials and files to 3D print in additive manufacturing. This is a tremendous advantage regarding security and trust.
If you are in Logistics, yes, you guessed it; blockchain will imply a major change. Indeed, in this space IBM and Maersk are working together. Being 90% of goods carried by the shipping industry and where processing documents costs more than twice the actual cost of transportation, blockchain streamlines the process through trusted security in a digitalized workflow – stages, documents and signatures are online – where the shipments can be tracked from end to end.
Even though this technology is still developing, we at RedPoint Advisory Services are at the vanguard and we would be pleased to collaborate with you. We are committed to innovation to help our customers by providing Transformational Leadership in Logistics Management, Distribution Management, Transportation Management, Operations Management, Information Technology, and Lean Continuous Improvement.